South Africa is a growing economy in one of the most exciting continents in the world. South Africa is considered the powerhouse of Africa as it drives much of the economy of the continent and has the most advanced infrastructure in Africa.
With that being said, the country’s diverse cultures and other issues present many hurdles in the way of growing businesses. South Africa is ranked 39 in the world for ease of doing business. Opening a business in South Africa is tricky and today, we will be having a look at the top hurdles of doing business in South Africa:
Starting A Business
The first problem in starting a business in South Africa is actually starting a business which is a long and tedious process. It can cost a significant proportion of income per capita. For most of the countries in Africa, it is true and it can cost up to 60% of the income per capita but for some countries like South Africa, it is partly our as the cost of starting a business there is only 0.4% of income per capita. So, while South Africa may be an exception, other countries cost a huge amount of money just for starting a business.
Tekedia Mini-MBA edition 16 (Feb 10 – May 3, 2025) opens registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
Construction Permits
Next up, we have the problem of construction permits. In the majority of the countries in Africa, the cost is significantly higher to get a construction permit but again South Africa is an exception here and the cost of getting a construction permit there is cheap. It takes about 13 procedures and about 125-130 days to get a permit, which is a seamless process for locals but for foreigners it is a lengthy and tedious process.
Getting An Electricity Connection
Since most of the African countries don’t have the state of the art infrastructure, getting an electricity connection is also a major problem for businesses. In South Africa, it is a very long process that can take a long time. Most foreign firms and companies are usually not familiar with such lengthy processes and struggle with such issues.
Property Registration
Property Registration is another problem in African countries. Although the whole process of proper registration depends on the rate at which you obtain a clearance certificate from the local authorities and how long it takes to lodge the deed at the Deeds Registry, it is generally a long process and takes about 3-4 weeks to get your property registered.
Paying Taxes
Paying taxes is also a problem for foreign companies in South Africa because it is also a very lengthy process. It has been estimated that it takes about 200 hours to pay taxes every year and requires up to 9 payments. Corporate income tax and unemployment insurance contributions (UIC) are very strenuous ones. The Corporate income tax is a flat rate of 28% of all companies, however, multinational online companies such as Omegle, eBay, Tinge, CooMeet, etc escape paying corporate tax in South Africa.
Overseas Trade
Import and Export across borders are also major problems. South Africa is one of those places in the world where it is very difficult to conduct overseas trades. In recent years, huge strides have been made to ease the difficulties involved in trading across borders but still, it remains a significant problem, especially for foreigners.
The cost of trading across borders is very much but along with that, the process of documents complication and getting the approval from the concerned committee is also a hard one.
Enforcing Contracts
Since foreign companies usually sign contracts, enforcing the contracts in South Africa is also a very long process and a major hurdle in conducting business there. The cost of hiring an attorney and the court fees make the process expensive but what’s worse is that trial and judgment can take a very long time, on average 1-2 years when enforcing contracts and this is something that a foreign company would rather avoid.
Diverse Region
Since South Africa is a diverse country where there are multiple cultures and different languages spoken, it is important for any business to adopt a bespoke approach in different regions for the business to flourish. The business environment in South Africa is different and you can call it an informal environment. For any business to flourish, it is imperative to build a rapport with the locals and try to understand them.
These are some of the major challenges in starting a business in South Africa. These aren’t very big problems and can easily be resolved if you know a local advisor who has sound knowledge about these hurdles. For any foreigner, it would be difficult to start a business there without the help of an expert local who has all the knowledge about these things.